Stocks opened lower this morning (Dow -82 pts; SPX -.3%). Defensive sectors are trading modestly higher (consumer staples, utilities, healthcare). Cyclicals, on the other hand, are in the red (i.e. energy, financials, industrials). US small-caps and foreign stocks are mostly lower as well. The VIX Index rose to 12.8 but is still at a very low level. Commodities are mostly lower in early trading. WTI crude oil fell back to $63.20/barrel. Gold is down a tad. Bonds are mixed in early trading. Treasuries are up slightly whereas corporates are down. The 10-year Treasury yield is hovering around 2.55%. By the way, Germany’s 10-year sovereign bond yield ticked up to .07%, the highest in weeks. Investors are uneasy about the fact that billions of dollars of foreign sovereign bonds are trading with a negative yield. That is, investors are guaranteed to lose money. Aside of the fact that this doesn’t make any sense, it tends to encourage foreign bond investors (like pension funds and insurance companies) to buy US Treasuries instead. And that, in turn, drives our yields lower. The takeaway is that if German bond yields are rising, we can probably expect US Treasury yields to rise as well.

Bloomberg’s top headline today is “US Stocks Fall as Earnings Roll in; Oil Drops.” Both Goldman Sachs (GS) and Citigroup (C) reported first quarter results that disappointed investors. Goldman’s Q1 revenue fell 12% and earnings-per-share fell 18% from year-ago levels. And yet, while conceding a “muted start to the year,” the CEO said, “Our core businesses generated sold results…” Investors aren’t buying it and the stock is down 3% today. Management announced pay cuts (total compensation -20% from year-ago levels) in order to better control costs. Citigroup’s stock is down .5% after reporting Q1 results. Total revenue fell 2% y/y but earnings-per-share rose 11% on accelerated stock buy-backs. The bank’s securities trading business beat expectations, as did investment banking. Consumer banking, however, didn’t grow. Average deposits are up only 1% from year-ago levels. In addition, the bank set aside about $2bil against potentially bad consumer loans as credit losses grew 10%. This clearly bears watching.

Oil is up about 40% this year, recovering from a massive 45% decline late last year. The International Energy Agency (IEA) says although global oil supply has tightened, it is concerned about demand due to slower global economic growth. Nevertheless, the IEA held its official forecast for oil demand at 1.4 million barrels per day in 2019. While the IEA usually gets headlines with its forecasts, most of its commentary is backward looking and thus already priced into markets.

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